UK would veto EU financial transaction tax, says London paper

The UK government is understood to be prepared to shoot down proposals for a financial transaction tax being mooted by Germany and France.

Treasury sources told conservative UK newspaper the Telegraph the UK would veto such a tax if it was brought to a vote in Europe.

France and Germany have proposed the so called Tobin tax jointly as they seek to tackle the eurozone crisis.

However, the proposal have sparked protests from the City and economic bodies in the UK, who argued it would harm economies across Europe.

The Adam Smith Institute, the free-market think-tank, said in a note that such a tax would be ‘economic suicide’, warning it typically fails to raise as much revenue as expected and could cause investors to do business elsewhere.

Shares in European financial stocks fell sharply yesterday on the news, with exchange operators London Stock Exchange tumbling sharply.

Stocks of interdealer brokers Icap and Tullett Prebon also lost ground during trading in London, despite one analyst saying these globally focused companies not facing as much trouble as more regionally focused financials.

The ASI noted a similar tax introduced in Sweden in 1984 drove half its equities to London over the following six years.

German chancellor Angela Merkel and French president Nicolas Sarkozy said they planned to introduce the tax next September, as part of their response to the sovereign debt crisis.

Sarkozy said: “The French and German ministers will table a joint proposal at the EU level next September for a tax on financial transactions. This is a priority for us.”